Is the share market over valued?
The Australian share market reached new highs last week, even though projected profits of most companies are subdued. So, is the Australian share market over valued? And, if it is, what can retirees do to guard themselves against investment losses?
Money can buy happiness (but usually doesn’t)
The relationship between money and happiness is complex. Beyond a certain level of wealth, there is no evidence that happiness increases with wealth. And often the reverse is true; our happiness can decrease as we get richer.
Granted, for the poor, every extra dollar counts. More money provides for life’s necessities, relieves financial stress and increases life satisfaction.
Wealth paradox
But for those with average or higher than average incomes, the nexus between happiness and increasing wealth breaks. For those households with enough to satisfy basic needs, more money does not deliver happiness and it can increase financial stress.
Calm the farm: US economic fears overblown
The Australian share market experienced losses of $100 billion over two days in early August because of fears of a US recession. But how likely is the economic threat really and, ultimately, will the markets care?
Cbus: A relic from the past
When it rains, it pours. The construction industry super fund has recently been in the news about its poor performance. Now there are revelations of corruption with secret deals involving lucrative contracts and links to criminals and bikie organisations.
Compare the Pair: Super fund returns
Super fund returns for the year ended June 2024 have been released, with some surprising results. Market darlings, Australian Super and CBus have underperformed, while out-of-favour retail funds, AMP and Colonial First State topped the charts.
So, what’s behind the performance results and what can retiree investors learn from them?
What the future holds
It’s a shame money doesn’t buy happiness, because from a financial perspective the future looks bright.
Treasury released its latest intergenerational report this month and it makes for fascinating reading. With the luxury of a 40-year outlook, the report lifts above the distraction of day-to-day noise. Instead, it analyses the macrotrends that will drive the economy and the retirement income system in the long-term.
SKI club: Why it’s losing its members
Spending the Kids’ Inheritance (SKI). Every retiree jokes about it. But in our recent experience, Australian retirees are turning their minds to helping family members financially. They are more concerned about the impact of the rising cost of living on their families than themselves.
Waste not want not
Minimum pension drawdowns limits doubled on 1 July; are you ready?
Account based pensions are flexible retirement income streams. When you stop and think about it, there are very few restrictions on what you can do with them. If you are retired, you can access your money whenever you like, you can switch providers, you can choose how you invest, you can choose the level of income you desire and there is no maximum drawdown imposed.
Man in the Mirror: How community will transform financial planning
A tourist is travelling through Ireland. He stops a local and asked for directions to Dublin. The local earnestly responds: “Well, Sir, if I was going to Dublin, I wouldn’t want to be starting from here”.
Global banking turmoil and your super
It all started a couple of weeks ago with the collapse of mid-tier US institution Silicon Valley Bank. Soon another mid-tier bank in the US, Signature Bank, collapsed.
If you have been brave enough to look at your super balance in the past few days you will know that the share market has since fallen more than 5% and is now trading at four months lows. In that two weeks markets have fallen because the recent turmoil in banking has spooked investors who remember the pain of the Global Financial Crisis 13 years ago.
Bad Medicine
Bad medicine: Why the RBA is right to increase rates
In February the Reserve Bank of Australia (RBA) increased official interest rates again, this time another 25 basis points. The official interest rates are now 3.35% pa, up from 0.1% pa in May last year, an increase that is sure to be causing mortgage stress and rental increases amongst the most vulnerable.
But, as bad as high interest rates are, they are better than the alternative; high long-term inflation. That’s why the RBA is right to keep increasing interest rates.
The best and worst super funds in 2022
Most people don’t engage with their super until they’re about to retire. But APRA’s annual performance report on super funds shows why it’s important that you do. Not all super funds are equal and there is a big difference between the best and worst funds.
Who you gonna call?
The financial advice industry is in the process of transforming into a profession. It hasn’t been a painless process. Financial planners are leaving the advice industry in droves. Since December 2018, the number of advisers registered with ASIC has almost halved, falling from 28,000 to fewer than 16,000 in less than four years.
Stay the course: Five things to remember during uncertain times
Stay the course: Five things to remember during uncertain times
It’s tough being an investor right now. It’s even harder to be a retiree investor because retirees are generally more conservative than their younger selves. Let’s face it, most of us are feeling significantly poorer than we were 12 months ago. With the US share market off 16 percent since the start of the year, house prices falling for six consecutive months, and with the cost of living rising at levels not seen for 30 years, it’s no wonder that retirees might be losing confidence.
But this is not the first economic slowdown we have seen and it’s not the first market correction. Here are the five most important things for retiree investors to remember during uncertain times.
Inflation and your retirement
Inflation and your retirement
With the property market cooling, Australians have finally stopped talking about real estate prices. At dinner parties everywhere, there’s a new conversation.
The bad news? The new conversation is about the rising costs of living. It’s understandable. In the year to July 2022, the costs of consumer goods and services rose 7 per cent.
While the media focus has been on the plight of young families with mortgages, rising inflation presents unique challenges and risks to retirees as well. Especially in low growth economic conditions.
But there are things retirees can do to manage inflation risk and make sure their money lasts.
Five Questions
Five questions you should ask your financial planner right now
If you haven’t already, you will soon receive your annual statement from your super fund. When you open your email, you will probably see that over the past 12 months your super fund has provided a negative return.
Let’s be clear, a negative return over 12 months means you have less money invested at the end of the financial year than you had invested at the start of the financial year. That’s before accounting for your withdrawals.
In a year when the cost of living rose by more than six percent, it’s a challenging outcome.
Negative returns should be expected from time to time, but that doesn’t make them any easier when they happen. And it’s certainly not helpful when super funds patronise their members with cliches and platitudes.
Representing you, not your super fund
That’s why it’s important to get beneath the surface and hold your super fund accountable for their returns. Holding super funds accountable for their performance is a vital role that independent financial planners play.
It works because independent financial advisers work for you, not your super fund.
Here are the five questions you should be asking an independent financial planner:
1. Why have my retirement investments performed poorly?
Your super fund will know its exposure to markets and individual assets. It will have done what the experts call an “attribution analysis” to understand which sectors and investments underperformed.
It’s your money, so you deserve to know the results of the attribution analysis. What did your super fund get right and what did it get wrong?
2. How has my super fund responded?
The Nobel prize winning economist Paul Samuelson once quipped “When the facts change, I change my mind”.
What has your super fund learned over the past year and what has it done in response? Has it modified its approach in any way and what underlying holdings have changed?
3. Am I still on track?
It’s unlikely that your long-term plans have been skittled by the recent downturn.
But for peace of mind ask your financial planner for an up-to-date cash flow projection. Has the combined impact of recent inflation and the market downturn impacted on how much you can spend in retirement?
4. Have any opportunities arisen?
There’s a reason market falls of 10 percent are called market "corrections". Assets are repriced and what was once expensive might now be good value. Have the recent market falls created any opportunities to buy? Is your super fund scouting around for these opportunities?
5. What should I be doing next?
During periods of the uncertainty, it’s essential to get personal advice, specific to your unique situation. Rules of thumb or general advice aren’t helpful at times like this.
So, check in on your progress by reviewing your retirement strategy. As independent financial planners, we sit on your side of the desk, making sure your super fund is held accountable and giving you confidence you’re doing everything you can to make the most of your financial circumstances.
Daniel Crump is the founder of Daniel Crump Financial Planning. This article is general and does not consider your personal circumstances. If you would like advice specific to you, give us a call on 0418 148 622.
Inheritance tax: Is the tax office a beneficiary of your super?
Officially, it has been 40 years since Australia abolished the formal Inheritance Tax, or death tax. But we think that’s bunkum. There is tax payable on super when you die and leave your money to your adult children.
Fortunately, a rule change that came into effect in July can help. But only if you engage and act.
120 Days of War
The war in Ukraine has now entered its fifth month and the ripple effects are increasing right around the globe. In Australia we have seen significant increases in the cost of living, rising interest rates, falling house prices and negative returns from both the share market and the bond market.
Not a time to set and forget
Markets have been volatile recently. In the last month alone the Australian share market has fallen around 6%. There’s so much uncertainty now; the Ukraine war, the ongoing Covid pandemic, and now systemic global inflation and rising interest rates.
Markets hate this uncertainty. So, what should retirees be doing to protect their retirement incomes?
Spending Confidence
One of life’s biggest mysteries is knowing how much we can afford to spend day-to-day in retirement. It’s hard because there’s just so much we don’t know.
We don’t know how long we are going to live, so we don’t know how long our money needs to last. We don’t know what emergencies and life challenges will crop up from time to time and require money.
We don’t even know what return our investments will provide.